lspin.
Once happy to ride shotgun aboard dot-coms' meteoric ascent and to pour their services into the startup channel, outsourcers paid little attention to the focused needs of larger, complex enterprise customers.
However, leverage is starting to shift back to those large customers who can afford to patiently seek out tailored outsourced services that address their specific needs.
"To be sure, some of the fly-by-night dot-coms have disappeared from our radar screen," says Mitch Kristofferson, vice president of marketing at San Carlos, Calif.-based Corio. "We have to go where we find business."
Kristofferson acknowledges that Corio relied heavily on the speed-to-market option that dot-coms provided the outsourcer during its first two years of business.
But expertise in offering ready-made applications in a matter of weeks was of little importance to larger customers requiring greater software functionality customization and infrastructure support.
"It's not that out-of-the-box isn't valuable to those large customers -- it is," Kristofferson remarks. "But to get an organization of that magnitude to change its legacy processes [quickly] isn't practical. They have to scale to make that investment."
To help ease that transition, Corio has enlisted the aid of system integrators such as Arthur Andersen, Cap Gemini, and Ernst and Young as partners to gain critical integration know-how and to help sell large organizations on the idea of outsourcing while Corio handles the technology implementation end.
Kristofferson says Corio's recent launch of its Intelligent Infrastructure product is an attempt to package its infrastructure services in a method that meets larger enterprises' needs. He adds that the number of outsourcing inquiries received by Corio from large enterprises skyrocketed from zero last year to comprising the bulk of its current pipeline.
The primary hurdle for outsourcing has been the lack of interaction between outsourced and in-house applications, says Arthur Williams, director of IT management and services at Cambridge, Mass.-based Giga Information Group.
Williams says ASP (application service provider) vendors that hawk software applications have matured to the point where they can sell larger customers on the promise that outsourced applications won't cripple or significantly hamper internal infrastructures and procedures.
"Software applications are becoming more convenient, and [they] slip right into an organization, as opposed to ERP [enterprise resource planning] and CRM [customer relationship management] packages," Williams explains. "All of the applications you can imagine are being offered in this fashion, and there are plenty of takers."
Tailoring services for the big buyers
Forging comfortable outsourcing relationships and interaction mechanisms can be the most critical element of customer acceptance, explains Mike DiMezza, direcctor of networks and communications at New York-based clothing retailer Tommy Hilfiger.
"To me, [a strong relationship] is priceless," DiMezza says. "If I didn't have the relationship [piece], I don't think I would continue outsourcing, or look into future outsourcing."
For the past four years, Tommy Hilfiger has employed outsourcer Exenet, in New York, to manage its entire 23-site WAN system, which is centrally connected to a WAN mainframe in New Jersey.
Via its link to the retailer's network, Exenet offers router and switch-performance monitoring within the infrastructure and support and troubleshooting services in an MSP (managed service provider) model. Exenet also checks for latency on the clothier's lines from telecom carriers or checks the its system via the Web to determine where the top talkers are on the network, instituting traffic tickets when necessary, DiMezza adds.
"There are so many other projects going on and Tommy is growing by leaps and bounds, [so] we needed someone to help us manage everything while we are constantly managing new projects [in-house]," DiMezza says.
However, DiMezza is quick to note that the retailer's outsourcing past has not been as rosy -- other service providers and integration efforts failed because of poor communication and an inability to reach appropriate outsourcing company contacts immediately when needed.
Eric Walton, Exenet's vice president of business development, says Exenet also manages SLAs (service-level agreements) from outside providers, such as helping with WorldCom's bandwidth SLA.
Changing approaches
As ASPs weather the hit they're taking from the dwindling base of dot-com customers, implementing tactics such as differentiating themselves via SLAs will help boost appeal for larger, more stable customers.
"A year ago, there wasn't as much emphasis on SLAs. That [emphasis] is now being driven by larger companies that need to see a firm commitment," says John Bonello, an attorney with the Washington law firm McKenna & Cuneo. Bonello represents some ASPs and helped craft the Information Technology Association of America's (ITAA's) guidelines for ASPs preparing SLAs.
"Larger customers are soon going to have a lot of pull with ASPs, which desperately want to land those big companies as clients. Since they will be in such demand, big clients may get some added deals that other companies can't," Bonello predicts.
Bonello uses Jamcracker as an example of an ASP herding together offerings from several other ASPs in an attempt to sell a full plate of applications including back-office, CRM, e-commerce, and financial applications as a one-stop shopping deal for customers.
With the ASP industry shifting in favor of large enterprise customers, companies such as Textron, of Providence, R.I., are keeping careful tabs on the evolving ASP, dot-com, and outsourcing markets.
During the investigation of outsourcing as a viable option to help with Textron's aerospace, automotive, industrial, and financial architecture management business, CTO Phyllis Michaelides decided outsourcing is still "[too] immature to jump in with both feet."
"When you outsource everything or some core application, you're dependent on that service provider and you really have to feel that the company is viable," Michaelides says. The question of ASPs' ability to survive current economic conditions now takes precedence even over the issue of how to wrap outsourcers into enterprise operations, she notes.
In her mission to discover the best possible outsourcing fit, Michaelides is particularly eyeing MSPs that handle generic applications, such as ERPs and CRMs. The MSP model, she maintains, would allow Textron to have a shared sense of control over value-addds, and at the same time allow it to keep its own core business applications close to the vest.
Precise and seamless integration is a must, notes Michaelides, adding that she believes hasty decisions to discard legacy systems to fit an incoming service could overrun costs and implementation plans.
"You can't just give away the store," Michaelides says. "It is not always necessary to rip up everything that's old. Some [infrastructure] may still be worthy if we service it and repurpose it."
Tightening the service focus
With all of this attention on the needs of larger customers, a split remains in terms of the direction that ASPs are taking to answer customer demand, according to Giga's Williams. Some are focusing on sharpening their specific technical focus, while others are scurrying to build partnerships to offer one-stop application shopping, which allows enterprises to get some breathing room and free up resources to concentrate on what drives their business' intellect and success.
Chicago-based Sears is one enterprise trying on the idea of hiring a service provider for a narrowly defined application to offload the burden of bringing a complex new capability in-house.
The megaretailer for years has built a highly evolved EDI (electronic data interchange) system, but has recently tapped service providers to play defined roles in the system. Specifically, Sears outsourced the task of adding new suppliers to its base of 4,000 partners exchanging orders in its EDI systems to SBS Commerce. Under this arrangement, SBS Commerce, for instance, would be responsible for doing validation tests on partners' systems along with back-end adjustments necessary to put new partners into the massive EDI endeavor.
The company is also working with several third parties to help bring its entire electronic catalog environment up-to-speed, says Jon Lissman, Sears' senior project manager for e-commerce services.
"Many of these companies are very proficient service providers that specialize in certain areas," Lissman explains. "The whole catalog arena is one where rather than reinvent the wheel, we are coordinating with third parties to speed up the implementation."
Lissman says the key to effectively choosing an outsourcing provider is to first determine the specific area of need and then find out which outsourcing company is best equipped to perform the particular function at a cost that makes sense.
"The issue becomes whether there is a service provider that can do it better and more efficiently," Lissman adds. "It [all] depends on the particulars."
